Source: MarketSquare

As the blockchain games industry keeps growing, various tokenomic models are emerging and constantly evolving. What worked initially may not work now or at least not be considered a best practice any longer. Town Star, a web-based town farming resource management game developed by Gala Games, is one of those games that’s working to evolve amidst a changing industry. More specifically, the game is in the process of overhauling its entire tokenomics strategy.

As with most blockchain games, the initial launch of Town Coin (TOWN), the game’s core token, was relatively simple. The model began with a couple sources and sinks, which was sufficient at the time, but as the game and economy grew, it proved to not be so sustainable. In this essay, we’re going to dive into Town Star’s game economy by first looking at the issues of the old model and then analyzing the new proposed changes and whether they are sustainable.

First, however, let’s take a step back to cover the basics. In Town Star, players compete to build towns in a set amount of time and earn various “stars” (more on this below) based on the goods they produce and sell. The game has a pretty dedicated player base boasting a D30 retention rate of over 40% (in comparison, a successful free-to-play game often has a D30 of 10%). Town Star is also positioned as Gala’s flagship game; it’s where the team actively tests play-to-earn mechanics and learns what does or doesn’t work. It’s the title in which the most new features are rolled out — earning NFTs, sponsored/branded NFTs, various tokenomic changes, etc.

Actual game footage of Town Star, a competitive fairly complex strategic farm resourcing web game. | Source: Town Star

Understanding Town Star’s Traditional Economy

Let’s take a look at how Town Star has historically managed its economy. Town Star has two in-game currencies — one for cash funds and one for stars. The cash is used for building and selling goods inside the game, and it’s essential to the core loop of building the town from scratch into a larger, sustainable town that sells high-value goods. Along with selling goods, players also earn stars, which are important as they help determine overall rankings. Additionally, stars are also critical in achieving the daily challenge where players actually earn the native crypto coin TOWN for playing.

The amount of TOWN a player can earn is based on how many NFTs are used in the town as well as how much TOWN a particular NFT can earn. This can range from as low as 1 TOWN to as high as over 3,000 TOWN for an Ancient item (the most exclusive rarity in the Gala Games system; the rarity tiers are common, uncommon, rare, epic, legendary, and ancient). In order to earn TOWN from the NFTs, players must complete the daily challenge. This originally was set at 1,000 stars regardless if it was the 1st day of play or the 14th day of play. As long as the player earned 1,000 stars for the day, they were able to collect TOWN from their NFTs.

Once the Daily Challenge is completed (1000+ stars) the TOWN coin can be claimed | Source: Town Star

The earning potential is capped by “Gala Power” — a leveling system based on how much GALA (Gala Games central token) and TOWN (the native coin to Town Star) is held, with TOWN having a 2x weight. The Gala Power determines the number of NFTs a player can earn TOWN on. If the player has a Gala Power of 10 then they will earn TOWN on up to 10 of their highest level NFTs.

Another source of TOWN is through Gala’s Node system. Gala currently has two types of Nodes: Founders Nodes and Town Nodes. Founders Nodes support all games in the Gala ecosystem and have special rights and benefits. Game nodes — of which Town Nodes are the only ones so far (for Town Star, of course) — are for specific games. A Town Node currently earns about 24 TOWN/day whereas the Founder’s Node earns about 4 TOWN/day as a reward for running the node. Given the limited supply of Node Owners and the low amount of TOWN distributed, the bulk of the total TOWN distributed each day primarily comes from NFT holders that are completing their Daily Challenges.

The other side of the economy equation is the spending (or holding) of TOWN, of which Gala Power, NFT sales, and Node sales all play a role.

As mentioned above, Gala Power determines how many of a player’s NFTs can earn TOWN. This restriction can be viewed as somewhat of a “staking” requirement where if players want to earn TOWN they need to hold enough GALA or TOWN to get to their needed Gala Power. This requires players to not sell their TOWN but instead just hold so they can earn. To help encourage holding TOWN, it is weighted at 2x to a GALA holding.

Spending TOWN mainly comes from NFT sales (which are initially offered in TOWN) and, to a lesser degree, Town Node sales. The team often pre-announces an upcoming NFT drop, hypes it up via announcements, sneak peaks, and AMAs, and requires TOWN to be used to buy in. Another common tactic Gala uses is pricing tiers. If an NFT drop, for example, has a limited supply of 10k, then the team may split it up into 4 different sets of 2,500 that raise prices each time it’s sold. This does a couple things. One, it taps into FOMO (fear of missing out) since early adopters (1st tier purchases) get the best deal. And second, it makes the subsequent buyers pay a premium, as they will be adding to the supply pool and “diluting” the existing users.

Emerging Economic Issues

What are the problems with the above strategy?

One glaring issue is the limited amount of sinks/spend for TOWN, which lends itself to inflation. There are only three sinks (of varying levels of effectiveness): Town Nodes sales, Gala Power, and NFT sales.

Town Nodes sales have a limited impact since new nodes are only sold as the player base increases. Plus, there are only a few thousand Town Nodes, and there have only been two Town Node sales thus far. Therefore, this doesn’t provide an ongoing and significant impact to the overall TOWN supply.

Gala Power also has had a limited impact. Even though TOWN is given 2x weight of GALA, this benefit hasn’t been strong enough to combat the price of TOWN falling below that of GALA. Simply put, the incentives are not strong enough to just hold TOWN for the sole purpose of Gala Power, especially if there’s a more attractive and valuable coin the player prefers to hold instead (ie: GALA).

Even though TOWN has a 2x weight to GALA for Gala Power this has proven not enough of a backstop for TOWN to dip below GALA. | Source: Historical Prices from CoinGecko

NFT sales were highly effective in encouraging players to sink TOWN; however, the big catch is that each of these NFTs actually earns back TOWN. So in some ways it’s like pre-paying for your TOWN and getting it back each day as long as you complete the daily challenge. Naturally, this caused players, especially those attracted to the “play to earn” aspect, to seek out NFTs that have the highest ROI. The prices of many of the early Town Star NFTs were set at a 200/day breakeven, meaning that if the NFT earned 10 Town per day (assuming TOWN = $1), then the NFT would list for 200x or $2,000 in TOWN. This is a good yield, but it really just created a “kick the can down the road” situation and didn’t solve the inflation issue at a fundamental level.

Quite clearly, this is not a sustainable model. In order to continue feeding the system and sinking TOWN, the team would need to cause NFT inflation in a way that wouldn’t even fully solve the currency problem. This is similar to the classic “content treadmill” issue where new content is constantly required; however, since these NFTs persist forever, the system has the real danger of unraveling fairly quickly.

Summary of old vs new economy with a deep dive in each of the new items (in bold) following. | Source: Naavik Research

The Steps to Sustainability

Let’s take a look at what changes Gala Games has been making in its quest for a more sustainable economy.

Harder Daily Challenge Goals

The economic model obviously needed revamping. At its core, too much TOWN was being earned and sold, creating an excess supply that the market demand could not absorb. There, Gala decided to make some fundamental changes that reduce the amount of TOWN being earned every day.

One of the first changes (introduced this March) was changing how many stars were needed to complete the daily challenge and therefore earn TOWN. Previously, to complete the daily challenge, only 1,000 stars were required per day. The new monthly system is dynamic - it starts at 500 stars and each time increases by 250. For a month-long game, the 31st daily challenge now requires 8,000 stars, an 8x increase of the previous requirement. This had two effects. One, it makes it easier to start earning, especially for new players. Second, it ramps up the difficulty and time investment for most players to regularly meet the daily challenge goal.

The main objective, as Gala puts it, is to encourage “Building, Not Coasting.” Rolling out this change did require more engagement in the game and it slowed down how quickly players could collect TOWN, but it didn’t really reduce the actual amount of TOWN entering the system each day.

Split Out Town Power

Remember, Gala Power limits the quantity of the NFTs that a player could use to earn. However, because different NFTs range dramatically in their earnings levels, in practice this approach really only limits the players with many average NFTs but not so much players with a small set of high-earning NFTs.

In response to this, a new Town Power element was recently implemented, which actually limits the amount of TOWN that can be earned regardless of the quantity or power of NFTs. This is designed to limit players who are earning high amounts of TOWN. The new equation is set up so that in order to earn more TOWN, the player will need a higher level of Town Power, which is based on how much TOWN is held. In other words, in order to earn more TOWN, players will need to commit to holding instead of dumping in the open market.

The eventual goal is to have Gala Power “powered” strictly by GALA holdings and Town Power by TOWN holdings. This also positions Gala Power to be used more broadly across the other games in the Gala ecosystem, so this is a logical required decoupling.

Cut Daily Distributions

The introduction of Town Power encourages holding more TOWN as well as caps the amount of TOWN that can be earned, but for whales this provides just a minor inconvenience to harvest their max TOWN. To address this, Gala moved toward a completely new percentage-based distribution system called a Town Point system. Instead of receiving a specific amount of TOWN, a player now gets a percentage of the daily distribution.

As a simplified example, completing the daily challenge in the old system would reward a player with 100 TOWN. In the new system, the player instead receives 100 Town Points, which represent the % share of the entire daily distribution. In a study, the Gala Games team learned that 98% of players earn less than 1,000 TOWN per day, but the top 300 earners receive about 70% of the total TOWN distribution.

Under this new system, Gala can control and predict the exact number of TOWN that enters the system each day. The team sets the total distribution, and all the players just get a piece of the daily distribution pie. This strict capital control gives Gala tremendous power to better manage the supply side. Gala can sell more NFTs, but it now becomes a zero sum game since the NFTs just earn more points; the player gets a bigger piece of the pie, but the overall pie doesn’t change.

Source: Gala Games

In practical terms, this change reduces the daily production of TOWN by about 42% — nearly half! This is similar to BTC’s “halving” event, which occurs every four years. Basic economics will dictate that reducing supply but keeping demand the same (or higher) will cause prices to increase. However, even with this reduced TOWN supply, it hasn’t helped much with the price (granted, the entire market is down), although it would likely be much worse without this change.

An interesting side effect, for perhaps the better, is the further obfuscation of the financial payoff of the NFTs. Now that daily earnings have shifted to a point-based system, it’s harder to measure ROI and therefore introduces a new uncertainty and risk that may make the game less appealing to speculators and financial leeches. There’s a possibility that this change will result in actual players who are there for fun becoming a larger percentage of the total audience, which would be a major win.

Reduce the Earnings Power of NFTs

The last major change implemented is the removal of new NFTs that earn TOWN, which naturally creates a cap on how many total NFTs can earn TOWN. We’ve seen this in other games where, for example, only “genesis” NFTs have the ability to earn.

This enables a couple things. For one, decreasing the earnings utility of NFTs results in lower prices (such as from $1-2k to $500-700), which are still, of course, only purchasable via TOWN. Also, these non-earning NFTs can be sold in smaller quantities; the example below is selling only 200 copies at $750 in TOWN.

Source: Gala Games

More Sinks Via Gems

While cutting distributions and capping the available sources to earn helps on the supply side, the road to sustainability also heavily requires that demand be strong and that there are abundant sinks to fight inflation. Quite simply, as long as there are more players trying to extract more value from the game than they put in, selling pressure on the economy will always exist and the threat of unsustainability will linger.

To this end, Town Star is planning a new in-game non-cryptocurrency called Gems. TOWN will be used to purchase Gems, which can then be used for in-game items. This is very similar to an in-app purchase to receive in-game coins and then redeeming the coins for boosters, buffs, and items inside the game. Gems will be one-way; they can never be exchanged out. It will also serve as a “burning” mechanism for TOWN, as any TOWN redeemed will reduce supply, creating a much needed deflationary mechanism to help sustain the economy. Plans for Gems include such elements as special server passes, in-game upgrades, speed-ups, and the removal of negative proximity impacts (for instance, pollution or shade that decreases production).

What’s interesting and remains to be seen is if this can be a gateway mechanism to actual NFT ownership. The thinking here is, players will spend TOWN for Gems (like they do with IAP in F2P) to use, as an example, for temporary worker speed-ups for a particular competition round. They may continue to do this each time, but at some point they may start to think NFT ownership is better, as the same speed-up benefit can be permanently gained as long as they own the NFT. This is akin to the “rent vs buy” dilemma. Do I continue to rent my snowboard every season or just buy my own snowboard?

Will These Changes Create Sustainability? 

For any healthy economy (in-game or out), you need population growth — or at least a stable population in which you have equal or greater new users coming in than are leaving. To this end, Gala has promised that it will start putting more effort into Town Star’s user acquisition. Details remain vague, but this is clearly a must-have for the game and its economy to continue growing and thriving. These changes — all within less than a year since TOWN was first introduced — are all needed, and we’ll likely see more changes to come as the game’s economy evolves and matures.

At the end of the day, Town Star is ultimately becoming a zero sum game in which not all players can extract more value than they put in. Instead, what seems to be a viable model (at least for now) are the top players (typically, the whales who can buy the NFTs for a competitive advantage) competing among themselves for the top rewards while the common players can play more for fun, with a lower emphasis on earning anything.

For Town Star to increasingly succeed, it will need to continue deemphasizing earning and emphasizing fun. It’s the fun element that will attract more mass market consumers in a healthy way, where they can play at their own pace and spend TOWN more similar to a traditional IAP model in F2P. If Gala Games can effectively execute on these economy changes all while making Town Star increasingly fun, it could ease into a sustainable economic model that more blockchain games are seeking and could learn from.

A big thanks to Lawrence Hsieh for writing this essay. If Naavik can be of help as you build or fund games, please reach out.

Don’t miss our next issue!

Sign up to receive the #1 games industry newsletter, straight in your inbox.